24/7 Wall St.By Paul Ausick | 24/7 Wall St. – 21 minutes ago
Shipping rates as measured by the Baltic Dry Index are up about a third since the end of August. The index measures shipping rates for dry bulk cargoes such as grain and iron ore and is often cited as a leading indicator of economic activity.
Well, at least it used to be cited as such. The index posted an all-time high near 12,000 in May of 2008 and has never gotten closer to that number than around 4,800 a couple of years later. The index stands at 1,860 today, more than double its reading just 12 months ago.
Shipping companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Genco Shipping & Trading Ltd. (GNK), Eagle Bulk Shipping Inc. (EGLE), and Safe Bulkers Inc. (SB) are getting a boost as shipping rates rise to accommodate increased demand for grain and iron ore cargoes.
Forecast increases in Chinese steel production have raised forecasts for iron ore shipments and rising prices for corn and soybeans could hit record highs by the end of the year, raising demand -- and rates -- for bulk carriers to haul those cargoes. The spot rate for a capesize ship -- the largest bulk carriers -- today is around $36,400 a day, a far cry from the $7,000 spot rate 12 months ago. The spot rate for Panamax ships has nearly tripled, from around $3,700 a year ago to about $11,400 and the Supramax spot rate is up from $8,900 to nearly $10,000 a day.
Over the past 12 months, Eagle Bulk Shipping’s shares are up more than 300% and shares have jumped more than 83% just since the first of September. Some of that is undoubtedly due to short covering. Almost 20% of the company’s shares were short at the end of August. Nearly a quarter of Genco’s shares were short at the end of August. Short holdings on the other stocks was less than 2%.
Chardan Capital analyst Jay Srivatsa reiterated a Buy rating and $32 price target on EZchip Semiconductor after Thursday's massive sell-off after Cisco announced its first generation of NPU - the nPower X1 integrated network processor.
"While major details of the chip are still sketchy, it appears that with 400 Gbps throughput, programming control and improved performance, CSCO may be taking aim at EZCH's portfolio of NPU products, specifically the upcoming NPS. If this is the case, we believe this could be a negative for EZCH over the long term, given that Cisco is the largest customer for EZCH making up ~40% of its revenues in the most recent quarter. However, several questions remain to be answered. Two important questions that could impact EZCH are:
1. When is the nPower X1 available for sampling and when does CSCO expect to go into production?
2. What markets are they targeting with this product? Edge Routers? Data Centers? Both?
"While we could get answers to these questions from Cisco on the webcast scheduled for Sep 24th at 8am pst, it is our opinion that the earliest nPower X1 will be available in production quantities could be late 2014 or early 2015."
"It is our view that this product poses no near term threat to EZCH's NP4 and NP5 products and we expect Cisco to continue to place orders for its NP4 even as it transitions to the NP5 in its next generation of edge routers."
Longer term the investment thesis on the stock remains unclear, the analyst said. "With four (Cisco, Juniper Networks Huawei, Alcatel Lucent of the ~7-8 router companies adopting internal solutions, the total available market for EZCH in edge routing appears to be shrinking. While the company has targeted the NPS to expand its market beyond edge routing, we note that NPS is still in very early stages of development and is unlikely to be meaningful till 2015. With its edge routing opportunity shrinking every time one of its customers adopts an internal solution, the ability of EZCH to succeed with its NPS in penetrating new markets is more important than ever for the long term sustainability of the company."